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Can I use land as a down payment?

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Posted On: 08/06/2008

Q:I have a lot in Hawaii that’s worth $30,000. I’d like to exchange my lot as a down payment for a house in the same area. What should I do?

A: In theory you have a good idea; in practice it won’t happen.

To make your trade work you would have to find a home seller who wants your particular lot and who also agrees that it’s worth $30,000. Since most sellers want cash to buy a replacement home – and since most sellers don’t want your lot – the odds are overwhelming that you will not find such a seller.

The better approach is this: Sell the lot and use the cash for a down payment. That way there will be no dispute regarding the value of the lot and no question as to how much cash you have available for a down payment.

Q: How does one find a leasing agent for his or her home? I have called several property-management companies who either do not return the phone calls or ask what the address of the house is for the purpose of seeing if they even want to bother. Any advice would greatly be appreciated.

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A: There are large numbers of real-estate brokers in every community, but many do not manage single-family rental homes. The result is that your first step should be to look for a brokerage with a management department.

That said, there is the other question you need to raise: Having contacted brokers who apparently do handle rentals, you should ask yourself why it is they’re not fighting for your business.

One goal of being in business – whether the business is real estate, computers, plumbing or whatever – is to allocate assets wisely. Thus it makes no sense to accept a job at $15 an hour if you can $20 per hour for the same work, no matter how much a would-be employer wants you.

In a similar sense, lucid and logical brokers look for business that can yield the most benefit. If your community has falling real-estate values, a flock of foreclosures and lots of homes for rent, then rental management may not be a good business opportunity for a broker.

The question you have to ask about your property is this: Is it a good business deal for brokers? Given your market, can you make the home more attractive by lowering the rental rate, raising the management fee or both?

If rental management is not enticing local brokers, is there a surplus of rentals that makes your plan impractical? Before going further, take a look at the local rental marketplace.

Q: What recourse, if any, do I have if the owner of the home I bought did not disclose that it’s haunted?

A: When it comes to the matter of physical condition, most states have clear disclosure requirements. But what if the issue is not a physical concern but is instead a matter of perception?

Many states have “stigmatized” housing-disclosure rules that say what owners and brokers must tell buyers as part of the sale process – and what they need not say. As an example, must buyers be told there was a murder or suicide at a property? What if the murder occurred 10 years ago? Thirty years ago?

In some states there is no requirement to say anything about “psychologically impacted” homes, while others require disclosure. The definition of what is to be disclosed varies widely.

In the haunted house case of Stambovsky v. Ackley, one New York state justice offered this view:

“While I agree with Supreme Court that the real-estate broker, as agent for the seller, is under no duty to disclose to a potential buyer the phantasmal reputation of the premises and that, in his pursuit of a legal remedy for fraudulent misrepresentation against the seller, plaintiff hasn’t a ghost of a chance, I am nevertheless moved by the spirit of equity to allow the buyer to seek rescission of the contract of sale and recovery of his down payment. New York law fails to recognize any remedy for damages incurred as a result of the seller’s mere silence, applying instead the strict rule of caveat emptor. Therefore, the theoretical basis for granting relief, even under the extraordinary facts of this case, is elusive if not ephemeral.”

In other words, in this particular case the buyer did not have to go through with the sale because the seller did not disclose the presence of ghosts.

To determine your rights you first need to understand the disclosure requirements in your state. A real-estate attorney can provide details.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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